Noe, Thomas (2009) Product market efficiency: The bright side of myopic, uninformed, and passive external finance. In: Accounting and Finance Research Seminar, 11 November 2009, Lancaster University Management School, UK.Full text not available from this repository.
Short-term financial claims held by uninformed outside investors impose a tax on insider opportunism by diluting the ownership stake of opportunistic owner-managers. By thus limiting managerial opportunism, short-term financing increases firm value and social welfare. When given a choice, owner-managers will prefer socially beneficial short-term external financing over internal financing. We show that these results are equilibrium outcomes of a model where firms can act opportunistically in product markets. Moreover, we document the same beneficial effect of short-term external finance in a laboratory experiment implementing this game.
|Item Type:||Conference or Workshop Item (Paper)|
|Keywords:||Adverse selection; Financing; Reputation|
|Centre:||Faculty of Finance|
|Date Deposited:||26 Feb 2012 18:15|
|Last Modified:||23 Oct 2015 14:07|
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